In recent years, the Indian economy and the trend of "Made in India" have been unpredictable, leading to skepticism from many foreign media outlets about the authenticity of India's GDP figures.
Currently, the Indian economy is facing numerous challenges, which are closely related to the continuous interest rate hikes in the United States.
01. The Impact of U.S. Interest Rate Hikes
India's GDP has made significant leaps in recent years, gradually surpassing France and the United Kingdom to become the fifth-largest economy. Consequently, India's manufacturing industry has also experienced rapid growth.
The development of India's manufacturing industry is closely related to financial support.
Over the years, foreign capital has been flowing in continuously, especially after the outbreak of the pandemic. Due to the excessive money supply by the United States, liquidity has flooded the market, leading to a continuous influx of foreign capital into India's manufacturing, stock market, and real estate sectors.
The emerging economy of India has received substantial support from foreign capital over the years, which has also led to significant growth in its manufacturing industry. In the first half of 2022, two Indian cities were among the top ten cities with the highest property price increases in Asia.
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However, now that both the United States and Europe have entered a cycle of interest rate hikes and adopted monetary tightening policies, liquidity has disappeared. This means that the Indian currency has experienced significant devaluation, and a large amount of capital is expected to flow out. This poses a significant blow to India's manufacturing and agricultural sectors.
According to data, in the past two months, the transaction volume of real estate in Mumbai, India, has also decreased significantly, and property prices have not been able to rise. In the future, India may face a situation where property prices fall.
In terms of the stock market, a decline has already occurred. Not long ago, India's SENSEX30 reached 60,676 points, but it has now fallen by nearly 2,500 points and currently stands at 58,191 points.If calculated based on the lowest point of 56,147 at the end of September, the decline even reaches 4,500 points.
02, Can Foreign Capital Be Retained
Recently, Taiwan's Foxconn and India have initiated cooperation on semiconductor work, and it is estimated that upon completion of this project, India's status in the semiconductor field will also be enhanced.
This is India's ongoing effort to attract foreign capital. India is striving to continuously attract foreign investment, with ambitious plans to focus on semiconductor projects.
On the other hand, India is simultaneously undermining the enthusiasm of foreign capital.
The overall efficiency of India's manufacturing environment is not high, and the industrial support is not mature enough. More importantly, investments by Chinese brands such as Xiaomi and VIVO in India have not only failed to receive protection but have also been deliberately targeted.
A survey report from 2020 indicates that resolving economic disputes through the legal system in India takes an average of 1,445 days, which is nearly four years.
With such circumstances, can India truly gain the trust of foreign enterprises to cooperate stably in the long term?
03, Impact of the Pandemic
Although India's economy has developed better than before the pandemic, some industries are still struggling. The emergence of the pandemic has had an impact on India's consumption and employment.According to data, we can see that the growth in industries such as hospitality, manufacturing, and construction is still somewhat disappointing. This indicates that the impact of the pandemic on the Indian economy is still present, and a full recovery will require a long wait. Currently, India's unemployment rate remains high, with real wages hitting historically low levels. This has led to insufficient consumer spending in India, making it difficult for the economy to grow.
Once employment rates are insufficient, consumption becomes hard to stimulate. At the same time, inflation in India has led to increased input costs, which has severely impacted the development of India's manufacturing sector.
04 Oil Crisis
Additionally, the issue of oil procurement has put India in a dilemma, as it may not only increase costs and further trigger inflation but also provoke the United States' dissatisfaction. India has always relied on Russia for oil imports. A few months ago, India took advantage of Russia's inability to export oil to Western countries and purchased a large amount of Russian oil at low prices.
The United States and some Western countries expressed strong dissatisfaction with India's actions. When the United States imposed a price cap on Russian oil, it had warned India. Now, this issue has sparked a lot of controversy in Western media, forcing India to give up low-cost oil sources and reduce the amount of oil purchased from Russia.
Currently, India is actively taking measures to solve the immediate problems, such as increasing tariffs on rice exports to increase national fiscal revenue; additionally, attracting other foreign investments to replace the withdrawal of the US dollar.However, to date, there has been an outflow of foreign capital exceeding 2.7 trillion rupees, and whether this can be stopped is the most urgent issue that India needs to address.
Otherwise, with the continuous outflow of foreign capital, asset bubbles will inevitably burst. At that time, the stock and real estate markets will plummet, and India will find it very difficult to avoid being harvested by the US dollar.
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